Helping Indonesia to help ourselves

So Indonesia has requested budget assistance from Australia. Whatever we might provide will be relatively small compared with the magnitude of the problem, so we have a choice: to go bilaterally and put our own 'label' on what will inevitably be seen as a modest amount, or join a larger group in the hope of leveraging our funds by influencing others to contribute more.

This is not a clear-cut choice, but here's an additional element favouring the second option. If offering some funding though the regional swap arrangements (the Chiang Mai Initiative) encourages China and Japan to put just a tiny part of their huge foreign exchange reserves into this support framework, we might give our money some substantial leverage and, as well, provide a demonstration of our interest in being treated as a serious regional partner.

Of course, for the Chiang Mai Initiative to be a viable assistance framework, it needs to shed the IMF conditionality that makes it politically unacceptable to those countries which need it most. See my new Lowy Institute Analysis paper for more.